Standing Committee A

[Mr. Jimmy Hood in the Chair]

Finance Bill

(Except clauses 1 to 3 and 16 to 53 and - schedules 4 to 11) - Clause 5 - Alcoholic liquor duties

Question proposed [this day], That the clause stand part of the Bill. 
 Question again proposed.

Michael Jack: I welcome you to our proceedings, Mr. Hood. When we broke from the morning session, I was observing that the Customs and Excise press release C&E2 stated that the measure had the full support of the National Association of Cider Makers. However, the representation that I received from Devon Contract Packing Ltd makes it clear that the measure was not put forward by the National Association of Cider Makers but, as the letter says,
``by the two largest manufacturers, privately, after an NACM meeting.'' 
The letter makes a further point: 
 ``The worst part of the proposed legislation is the immediate implementation date. As there was no prior warning that this legislation was pending, or indeed no consultation with any of the firms who currently use DPD, we will be put in an impossible commercial position.'' 
That does not seem to me to be a very sensible way to go about things. Devon Contract Packing Ltd is a small enterprise and, as the hon. Member for Torridge and West Devon (Mr. Burnett) said, it is in an area that is suffering the economic ravages of the foot and mouth outbreak. 
 I hope that the Financial Secretary will give us some hard facts as to why the measure has been put forward. There is no specific information in the Government's propaganda about the potential duty losses. Devon Contract Packing Ltd says that it gains financially from the status quo to the same extent that the big cider manufacturers gain from their deposit arrangements. The letter concludes by proposing a complete review of cider duty, and that would be right way to discuss the measure.

Richard Ottaway: I welcome you to the Chair, Mr. Hood. I endorse the remarks made by the hon. Member for Torridge and West Devon and my right hon. Friend the Member for Fylde (Mr. Jack). They made their points succinctly.
 In truth, the argument boils down to two fundamental points. First, pre-existing contracts are in place. If the 12-month moratorium that has been suggested were allowed to come into effect, the small producers would not be put at a disadvantage. Secondly, the position of wine producers has not yet been addressed, and the small cider manufacturers feel that that is unfair. They argue that the regulations have been in place for 25 years and, if the wine producers are entitled to consultation before the rules are changed, they should have the same entitlement. My right hon. Friend the Member for Fylde made the point about consultation. Under the circumstances, we hope that the Financial Secretary has listened to the points that have been made.

Stephen Timms: I, too, welcome you to the Chair, Mr. Hood.
 Clause 5 provides for an amendment to the Alcohol Liquor Duties Act 1979, which will give Customs and Excise the power to tackle tax avoidance practices in the production of cider and perry. I want to give a careful account of that, because the position is a little different from the one that we have been informed of so far. 
 The measure provides power to make regulations regarding operations and processes performed on cider and perry. In addition to regulating those activities, it will enable Customs and Excise to prohibit operations after the duty point that would, if they had been carried out before it, have resulted in greater duty being payable on the finished product. The most common example is the dilution of cider after duty has been paid. As we have heard, cider is dutied in bands according to strength. Dilution is a straightforward tax avoidance practice whereby cider is produced at the top end of a band and duty paid on that volume, and then diluted to decrease its strength but increase its volume, effectively reducing the duty liability of the finished product.

John Burnett: Will the Financial Secretary give way?

Stephen Timms: Before giving way, I must point out that dilution before the duty point is indeed standard practice in the industry but dilution after the duty point did not, as far as I know, begin until 1999. Neither the National Association of Cider Makers nor Customs and Excise are aware of any cider maker diluting after duty point—which would, if it were legal, be an obvious duty-avoidance technique—prior to February 1999. I will explain in detail how that process arose.

John Burnett: I also welcome you to the Chair, Mr. Hood. It is a pleasure to serve under your chairmanship. I shall make a concise intervention and hope that I might catch your eye thereafter.
 The situation is not as clear-cut as the Financial Secretary has asserted because, as I said this morning, there are at least three aspects: the small cider makers who dilute post duty cannot afford a bond; they pay duty on ullage and spillage—while the contrary is not the case for the large bonded companies; and they pay their duty upfront.

Stephen Timms: I shall come to each of those points. The smallest cider makers do not pay duty at all. We are talking about an operation whereby a medium-sized cider producer sends product in bulk to a bottling operation, rather than making cider. Small cider makers—the real cottage industry—do not pay any duty.
 Cider makers have long been aware that the dilution of cider after the duty point is, in the eyes of the law, a tax avoidance scheme and that legislation to outlaw the practice would be introduced at the earliest opportunity. The National Association of Cider Makers—reference has been made to two large companies who belong to it—has fully supported that practice and has included a statement to that effect in its own code of practice. In the letter that it sent to all members of the Committee the association said: 
 ``Ever since 1976, it has been a condition of NACM membership that no cider maker should indulge in this practice.'' 
I am not therefore sympathetic to any cider makers who have decided to engage in the practice and obtain a short-term gain over their competitors in a duty benefit. If cider makers have invested on that basis, they have done so entirely at their own commercial risk. 
 Cider duty was reintroduced in 1976. The Customs interpretation of the law at that time was that dilution of duty-paid cider was not allowable and, as I have said, that was fully supported by the National Association of Cider Makers. With the introduction of the single market and the adoption of the European Union structures directive, it was confirmed that operations performed after the duty point, which would result in more duty being payable, are not permitted. 
 In February 1999, PricewaterhouseCoopers, a company of some ingenuity in these matters, challenged the Customs' interpretation of UK law on behalf of a bottling company—not the one that hon. Members were talking about. Legal advice to Customs, taken in response to that challenge, was that legislative amendment would be necessary to make the practice clearly illegal. However, until February 1999 no one had thought that it was not illegal. In March, Customs informed PricewaterhouseCoopers that steps would be taken to prohibit the practice and, concurrently, the National Association of Cider Makers was informed; it fully supported the Customs' position, and in April 1999 issued advice to its members to that effect. 
 Sitting suspended for a Division in the House. 
 On resuming—

Stephen Timms: I shall resume the chronology of events that I was running through. I referred a moment ago to a letter that I said had been sent to all members of the Committee. I understand that that is not the case; it was sent to members of the parliamentary cider group.

David Taylor: Would that be termed in-cider trading?

Stephen Timms: It probably would. If only I could think that quickly myself. However, as I said, the letter said that it had been a condition of NACM membership since 1976 that no cider maker should indulge in that practice. In April 1999, the NACM issued advice to its members outlining its support for Customs' position. It reads:
 ``In line with its established policy, NACM members are asked to ensure that wittingly or unwittingly they do not become involved in the supply of bulk duty-paid cider that may then be diluted and resold.'' 
The notice also pointed out that as consistently advised by Customs and Excise, the provision of duty-paid cider for resale is an offence. So the position was clear. 
 We did not include the provision in last year's Budget because of pressure on space in the Finance Bill, but Customs became aware last September of another bottling company—the one that operates in the constituency of the hon. Member for Torridge and West Devon—diluting duty-paid believed to be supplied to them by a then member of the National Association of Cider Makers. Customs wrote to Devon Contract Packing on 13 September explaining that although nothing in current law prevents that practice, 
 ``We plan to legislate against the practice at an early opportunity.'' 
So the position was made clear to the company concerned seven months ago. 
 In the run-up to the Budget, the National Association of Cider Makers pressed for the law to be clarified. On Budget day, the NACM held its annual general meeting, during which the resignation of the company that is supplying the company in the hon. Gentleman's constituency was demanded, and the company ceased to be an NACM member from that date.

John Burnett: May I clarify just one quick point of detail? Did the Financial Secretary say that the letter of 13 September was written to Devon Contract Packing?

Stephen Timms: Yes, it was sent to a Mr. R. Jackson at that company.
 Our view is that that activity is duty avoidance and that that has been known for 25 years. Our intention to legislate to achieve legal clarity has been known for at least two years. Devon Contract Packers was informed by letter more than seven months ago, so we are proceeding today in precisely the way that we said we would and that everybody has known that we would. 
 The hon. Gentleman and the right hon. Member for Fylde raised concerns about the position of the bond. Customs has the power to require a bond from an excise trader operating a duty suspense warehouse. 
 As the hon. Gentleman said, a figure of £250,000 was discussed with that company for a bond. However, after clarifying with the company what it wanted to do, Customs concluded that no bond was needed. The company is free to obtain duty suspended bulk cider, bottle it and to send it back to the supplier, and no bond will be required. I hope that that is helpful. A contrary view was put to the company at an earlier stage but that is the current position. In that light, I hope that the Committee will see that there is no disadvantage to this supplier or any other doing something similar. 
 How much money is at stake? No doubt the amount for that company is small, but if Parliament decided by rejecting the clause that this practice was, contrary to the understanding of the last 25 years, legal, all cider makers would do it, and why not since it would be a way of reducing their duty bills? Tens of millions of pounds would be at stake. We must make the position clear. I hope that the hon. Gentleman will accept that there is no disadvantage, either intended or in practice, to the company to which he referred, or to anyone practising similar activities.

Howard Flight: I have a brief question. The Minister kindly advised me after our initial discussions this morning that the limit for small cider makers is 7,000 litres. In the case of genuinely small cottage industries, will the Government consider that limit with a view to reviewing it upwards? My understanding of the cider cottage industry is that sales of 10,000 to 15,000 litres are more typical than as little as 7,000 litres.

Stephen Timms: The generous relief given is not available to brewers, although we have made an announcement about progressive beer duty. It is important that it is clearly targeted on the smallest producers. If the hon. Gentleman wants to make a case to me, I will have a look at it.

John Burnett: I am grateful to the Financial Secretary for a clear exposition of the problem and the solutions as he sees them. The crucial point is that there is no prejudice against small cider makers as to the time when they pay the duty, whether or not they are bonded. That important point goes some way towards assuaging my doubts about the clause. He also told us a little more about the extent of duty that could be lost.
 According to the Financial Secretary the practice of dilution, post duty, did not take place before 1999. I cannot contradict him, but that differs from the advice that I and others have received. If there are significant differences between the Financial Secretary's instructions and ours, we will revisit the point on Report. 
 Our cider market is dominated by two operators who have 90 per cent. of the market and considerable influence in the National Association of Cider Makers. I advise the Financial Secretary and any other Treasury Minister to ensure that a national body reflects the views of all its members. Having said that, I do not propose to vote against the clause and believe that my fellow Opposition Members are more content than they were.

Richard Ottaway: I shall not detain the Committee as there is much to be done, other than to say to the hon. Member for Torridge and West Devon that one cannot put a razor blade between us on the points that he has made. We agree with his sentiment on consultation, timing, and the method of implementing the proposal. Nonetheless, we will not be voting either.
 Question put and agreed to. 
 Clause 5 ordered to stand part of the Bill.

Clause 6 - General betting duty

Question proposed, That the clause stand part of the Bill.

Jimmy Hood: With this, with the agreement of the Committee, we will consider schedule 1 and the following amendments: No. 2 in page 84, line 30, leave out `3' and insert `2'.
 No. 3 in page 84, line 33, leave out `10' and insert `8'. 
 No. 4 in page 85, line 23, leave out first `to' and insert `or'. 
 No. 5 in page 85, line 32, at end insert: 
 `(1A) For the purposes of a charge under a provision of section 3 in respect of the class of bets to which the provision applies, the amount of a person's net stake receipts for an accounting period is X minus Y, where— 
 (a) X is the aggregate of amounts which fall due to that person in the accounting period in respect of bets of that class made with him, and 
 (b) Y is the aggregate of amounts paid by the person in that period by way of winnings to persons who made bets of that class with him (irrespective of when the bets were made or determined) minus any losses incurred in the previous accounting period.'.

Edward Davey: On a point of order, Mr. Hood. How should the rules of the House apply to the Conservative amendments on spread betting since the Conservatives benefited from a £5 million donation from Stuart Wheeler?

Jimmy Hood: Order. That is not a point of order.

Richard Ottaway: I had every intention of addressing the point that the hon. Gentleman just sought to make. I make no declaration of interest, other than to say that I have received advice in preparing my contribution to the debate from the Sports Spread Betting Association, one of whose members is a company that has a shareholder who has made a donation to the Conservative party.
 It is clear that there is growing public resistance to paying taxes. We have seen that in the fuel protests, in the reluctance by any political party to commit themselves to raising income tax, and on the levying of general betting duty. It is a phenomenon of the past two or three years that internet and telephone betting from Gibraltar have grown extensively because firms wish to remain competitive against others that offer bookmaking services offshore, because of the growth of the use of the internet. However, the upshot is that bets placed in Gibraltar will not attract the betting duty of 6.75 per cent., nor the horse race levy of 1.25 per cent., nor the administrative costs of implementing those duties, which have resulted in bookmakers levying a tax of 9 per cent. We agree with the Government that reform is needed. The measures have been in place for around 40 years, and as I understand it, internet betting is growing and it is estimated that by 2005 off-course betting will constitute some 9 per cent. of all betting. 
 The proposal, as I am sure the Minister will explain in some detail, is to switch the tax from a general betting duty to a tax on gross profits, even though it is still called a general betting duty. As far as the bookmakers are concerned, the tax will be on the difference between the sums bet and the winnings. At present, if one puts £1 on at 10 to 1, one either pays £10.90 or, if one sticks at £10, one is deemed to have bet £9.10 and if one wins one gets 10 times the amount staked. What will differ is that the winnings will be subtracted from the sums bet at the bookies and a 15 per cent. tax will be levied per accounting period on the difference between the two amounts. 
 The tax will not be levied on the punters, but absorbed by the bookies. It will not be passed on, though I understand that the code is voluntary. Will the Minister explain what would happen if a bookmaker broke the voluntary agreement? The purpose is to encourage high-volume betting through the telephone and internet. The new levy applies per accounting period, provisionally on a monthly basis, though the Treasury has the power to vary it. 
 Fixed odds bookies rarely have losing months. The profit is fairly continuous from one month to the next. The competitive pressures come from rival bookmakers, but that does not apply to spread betting, which is why I tabled the amendments. I hasten to tell the Minister that they are probing amendments, designed to draw out his attitude to spread betting. 
 Let me explain exactly what a spread bet is. It allows people to bet not on a result, but on the incremental aspects of a result. For example, someone might bet on how many runs England will make in a cricket match.

Tony Banks: Or how long the hon. Gentleman will speak.

Richard Ottaway: Yes. I would be interested to hear from the hon. Member for West Ham (Mr. Banks) what spread he would consider in that respect. To return to my cricket example, the spread might be that England will score 300 to 320 runs, and someone might bet a pound that England will score more than 320. If England scored 340 runs, there would be 20 runs at a pound a go and the winnings would be £20. If England scored only 250 runs, the bookies would be owed £70. Someone might bet that England will gain fewer than 300 runs and the same principle applies.
 Cricket is only one example: it also happens with football scores, the number of corners in a football match, the distance of a winner in horse racing and even the number of seats by which a political party will win an election. If you would like a tip, Mr. Hood, the IG index for political betting at the moment is that the Conservatives will secure between 208 and 212 seats at the next election. If you would care to stake £10 per seat, when the Conservatives gain 350 seats—[Laughter.] I am sorry, Mr. Hood. Hon. Members may be interested to know that in future political betting will fall under the category of sports betting. Spread bets are sometimes made on the movement of the FTSE or Dow index or of an individual share price. As we shall see, that will be treated differently from sports betting. 
 Spread betting is different from the bookies. First, it is regulated by the Financial Services Authority, which results in substantially higher levels of compliance costs. Secondly, the key players among the staff are registered and regulated by the FSA. They are highly skilled people who attract disproportionately high salaries. Thirdly, the general betting duty is currently absorbed by spread betters and is not passed on by the bookies. Fourthly, with financial spread betting, hedging is necessary to offset the exposures of rapid financial movements, which also has a cost. At present, only two spread betting companies are profitable. We welcome the Government's recognition that spread betting is different. Fixed odds betting will attract a levy of 15 per cent., sports spread betting one of 10 per cent. and financial spread betting one of 3 per cent., but I put it to the Minister that those figures distort the position. 
 The industry calculates that the levy of 10 per cent. on sports betting could represent an increase in taxation and revenues paid of 26 per cent. on the calendar year 2000. The 3 per cent. levy on financial spread betting will result in an increase of 180 per cent. compared with the calendar year 2000. If we take one company, Sporting Index, the 10 per cent. for sport represents an increase of 69 per cent., and the 3 per cent. represents an increase on financial spread betting of 170 per cent. Those are quite dramatic increases in revenues to be taken from individual companies. In the previous year, Sporting Index made a fairly modest profit of £2.5 million given its turnover. The extra tax that it will have to pay under the Government's proposals is £740,000. I hope that the Minister realises that it will not be a small incremental increase and that he will say that his object is to be financially neutral. 
 The situation is exacerbated when we learn that, in respect of fixed odds, it is estimated that the amount of tax paid will be halved. With spread betting, it will in some cases be doubled or nearly trebled. That is unsatisfactory and explains the thinking behind amendments Nos. 2 and 3, which simply ask for a level playing field and fiscal neutrality. After all, we do not want yet another stealth tax on spread betting. 
 Amendments Nos. 4 and 5 relate to the accounting period. As I said, fixed-odds profits at the bookies are fairly stable. With spread betting, they tend to be rather volatile, and it is not uncommon to have losing months. The legislation proposes that the accounting period is one month and there is no ability to carry forward losses from a previous month. That does not affect fixed-odds betting, but it affects spread betting. Let me illustrate that. If a financial spread betting company loses £2 million in one month but makes £2 million in the next, it is neutral, not up or down. However, it will have had to pay 3 per cent. on the £2 million profit, so it will end up paying a tax of £60,000 when it has made no profit whatever. The situation becomes worse when hedging is also taken into account. 
 Although the measure is welcome, the amendments must be taken seriously. Spread betting is an infant industry. It is a success story and brings in earnings from overseas. The industry is growing, but the legislation threatens its livelihood to quite a serious extent. I hope, therefore, that the Minister will consider our proposals seriously.

Edward Davey: I have some sympathy with the amendments, despite my attempt at a point of order, which you rightly ruled out of order, Mr. Hood. Although I have concerns that the Conservatives have arguably benefited indirectly from the industry. That should not affect how we discuss tax law. It is irrelevant how individuals or companies decide to organise their financial affairs with respect to politics, and our debate should not be prejudiced thereby. Although I wanted to check that the hon. Member for Croydon, South (Mr. Ottaway) would make such a statement, I welcome it. How we debate the issue should be completely independent of that donation.
 On public policy, as the hon. Gentleman said, we have received briefings from the Sports Spread Betting Association, which made it clear that few firms in the industry currently make healthy profits. The Government have recognised in their reform of gaming and betting duty that because of the internet, such companies can easily go offshore. It is indisputable that we must organise the tax system to prevent many jobs and businesses leaving this country as people seek to reduce their tax liability through technological change. 
 The Government must respond to the probing amendment and prove to the Committee that the rates that they propose are appropriate and will not lead to business leaving the country. If that happens, the net effect for the Exchequer will be negative, and the yield that it hopes to reap from the tax will not be realised. It is our job in the House to ensure that self-defeating tax policies are not implemented. I hope that the Financial Secretary will take seriously the amendment tabled by the hon. Member for Croydon, South explain to the Committee the Treasury's analysis and thinking about the level of the rates, answer the association's points and convince us that the rates should not be lower than the Bill provides.

Michael Jack: I first congratulate my hon. Friend the Member for Croydon, South on such a lucid explanation of betting matters. I should not say that he could well find alternative employment, but certainly on the one day a year when most of us visit a betting shop to place a wager on the Grand National, having my hon. Friend to explain the tax position would have been of great assistance—I might even have won, which I did not.
 In fairness to the Government, and interestingly, in the Customs and Excise press release announcing what we are debating, there is an acknowledgement that the spread betting industry operates ``in a different way'' and, as my hon. Friend rightly said, it is subject to different regulatory requirements. The Government made their statement about how they thought they ought to equate spread betting with normal betting by revised arrangements of the gross profit tax. However, once the industry saw the proposals, its perception of the impact of the revised arrangements clearly differed from that of the Government. 
 When the Minister first read the Budget, I am sure that he saw cogent arguments why the numbers in the Bill were right. I should be grateful if he would explain what detailed assessments were made in the real world of the impact of the proposals on spread betting companies. Had the illustrations of my hon. Friend been taken into account, a revised and more generous regime would have been devised, but it was not so. In the interests of understanding our the Government's position, perhaps the Financial Secretary will take us through the calculations or assessment of the spread betting industry that led to his conclusion and tell us whether he feels that maintaining the Bill's status quo may tempt companies to go offshore, with a consequent total loss of tax.

Andrew Tyrie: I shall not detain the Committee long because almost all the points that I wanted to make have been made already. I congratulate my hon. Friend the Member for Croydon, South on his excellent exposition of the subject, which shows personal experience on one or other side of the industry. I note that agreement is breaking out on the Opposition benches, even agreement that the point of order made at the beginning was out of order, which is refreshing.
 It is clear to anyone who has examined the industry that it is likely to see huge growth. The introduction of new technology will almost certainly ensure that. The industry will also benefit enormously from improved worldwide communication technology and become an increasingly international industry. The UK has a competitive advantage in the industry; we have people who know how it works, are good at it, have thought about it and have been in the game from the start. We have a particular interest in ensuring that we do not kill off the industry or seriously damage it at an early stage. Bearing in mind the industry's unique features, we are probably setting the rates too high, and there must be something in the point made by the industry that taxation on a month-by-month basis, without any provisions for the carrying forward of losses, is unacceptable. I will be grateful if the Minister bears those points in mind; he will probably not want to move too far on them, but if he can at least say that he is considering them, that will be a step forward.

Stephen Timms: I, too, enjoyed the account given by the hon. Member for Croydon, South, which was a helpful explanation of the issues in the clause. The hon. Member for West Dorset (Mr. Letwin) said this morning that there was nothing exciting in the Bill. Clearly he has not read recent issues of the Racing Post because, if he had, he would have seen that there has been much excitement about what clause 6 will make possible. It will radically reform the way in which betting is taxed and create the right competitive environment for UK-based bookmakers to develop their businesses domestically and internationally. It will give punters a better deal and secure for the Exchequer the revenue stream from betting in the long term.
 The largest UK bookmakers have made it clear that, as a result of the reform, they will be able to absorb the tax and end the 9 per cent. deduction that they charge on stakes. That will mean that punters will pay no tax. The clause will also allow UK bookmakers to develop their domestic and international business from an onshore base and therefore compete from a position of strength in a growing global market, in particular for telephone and internet betting. Many UK companies, including all the major ones, have gone offshore in the past year or so in order to offer low tax or tax-free telephone and internet betting. 
 The hon. Member for Croydon, South asked whether I thought that the bookmakers would deliver the zero deductions. They gave firm assurances before the Budget about removing reductions and have since restated them. Every major bookmaker quoted since the Budget has said that it will end the deductions, and there have been no conditions or caveats to those assurances. Any failure to deliver would be taken into account during future Budget processes, but I expect that competition in the industry will dictate that the reform will deliver deduction-free betting. One player in the industry would not be able to impose deductions if no other company was doing so. 
 The big UK bookmakers have said that they will relocate their offshore operations to the UK. The extra domestic and international betting turnover that the reform will generate should offer increased employment opportunities in the United Kingdom and benefit the betting and the racing industries. Government revenues will share in the gain from increased turnover in the medium term. I shall read out the reactions to the reform. Ladbroke's said: 
 ``This tax reform will benefit everyone. It is a fantastic example of Government listening to business.'' 
Coral's described the reform as a 
``bold and enlightened decision by the Government which will guarantee the long term prosperity and advancement of the UK betting and racing industry'' 
There was similar enthusiasm from William Hill, which stated that the reforms were 
 ``Great news for the British punter and great news for UK plc.'' 
Revenue estimated at £25 million will be lost in the short term as a result of the changes, but in the medium and long term, we expect it to be more than recouped as international and online betting is increasingly captured by UK industry. As the hon. Member for Chichester rightly said, the UK industry is strong and highly respected. If we had not made the change, it is likely that revenue would gently and steadily have declined as online betting grew, almost all of it being hosted offshore. 
 In the last week we have received receipts for last year's betting duties. After a number of years of buoyant growth, general betting duty receipts fell slightly by about 1 per cent. It is widely accepted that if no change had been made that decline would have continued, perhaps at a faster rate, in the years ahead. 
 The amendments deal with the new spread betting industry. An objective analysis suggests that it has been more lightly taxed than other sectors of the betting industry, and we have carefully considered the fairest way to deal with it. At one point, the industry favoured leaving the old arrangements in place just for spread betting but that would not have been viable given that it is a minor part of the overall betting industry and that the money involved is a small proportion of the total. Having a separate regime for spread betting would not have made sense and hon. Members did not suggest that. However, Customs analysts considered the data provided by the spread betting firms, which calculated the right rate of tax within the new arrangements. They concluded that the figures quoted by the hon. Gentleman of 3 per cent. for financial spread betting and 10 per cent. for sport spread betting were right. That was fair to the spread betting firms and to other players in betting, as substantial extra costs are incurred by spread betting firms. For example, they pay significantly higher salaries; they face the cost of compliance with financial services regulations and, in the case of financial spread betting, they carry the substantial costs of hedging. That is why the rate that we propose for financial spread betting is so much lower.

Michael Jack: I am following the Financial Secretary's analysis closely. He lifted the curtain on the way in which Customs determined whether the tax proposed in the Bill was fair. If the numbers that my hon. Friend proposed had resulted from that calculation, would the hon. Gentleman still have felt that the numbers were fair?

Stephen Timms: I am not sure that I follow the question. The numbers in the Bill are those that emerge from Customs' analysis as a fair level at which to set the tax. Obviously, if Customs' calculations had resulted in other numbers, they would have been quoted.

Richard Ottaway: I think that my right hon. Friend is saying that I gave him some figures that show that, for example, one company would be hit by £750,000 extra on a £2.5 million profit. If he had known of those figures at the time, would those advising him have thought that that treatment was fair?

Stephen Timms: Perhaps I should go further because I have a few more points to make.
 The companies provided the data on which those calculations were based. There was no shortage of accurate data about spread betting firms when those calculations were made. We depend not only on the analysis of Customs and Excise. As hon. Members may know, we received useful advice in a report—which is in the Library—commissioned by Customs and Excise from Nottingham university business school and Nottingham Trent university. It said on the issue: 
 ``Tax as a proportion of gross profits in sports spread betting has varied from just under 8 per cent. in 1999 to more than 10 per cent. in 1996. So we are sceptical that a gross profit tax of 10 per cent. would seriously threaten the viability of sports spread betting. Indeed, in 1999 William Hill index paid 16.4 per cent. of its turnover in tax'' 
—so a GPT of 10 per cent. would have significantly reduced the tax burden.

Richard Ottaway: The Minister will be aware that corporation tax comes in on top of the tax that we are discussing.

Stephen Timms: The Nottingham university analysis takes account of that. Customs and Excise came up with the figures and we have obtained the validation that the figures emerging from that research will not damage the industry, which has added a helpful validation of the analysis of Customs and Excise.
 I wish to address the other group of amendments and the question of whether we should allow spread bet bookmakers to carry over losses, given the extra volatility to which members of the Committee have referred.

Michael Jack: Would the Financial Secretary consider letting the Nottingham researchers who validated the Treasury position talk to the industry before the Bill concludes its passage to determine whether, in the light of the information that my hon. Friend the Member for Croydon, South has presented and which was calculated by the industry, the researchers are still as confident of the results of their earlier analysis?

Stephen Timms: I would be surprised if such discussions have not already taken place. I am confident that the Nottingham analysis was based on good information from the industry. Hon. Members are welcome to speak further to the researchers if they wish to do so.

Andrew Tyrie: Before the Minister moves to the issue of the rate on carry overs, he say more about what he sees as the Government's objective in setting a rate? Is it to provide a rate that will enable the industry to grow as much as possible to enable revenue to be maximised in the long run? Or is it to secure historic continuity? The Minister referred several times to the rate of tax on the industry in the years prior to the decision taken by Customs and Excise to set the rates. What is his response to the industry's view that the financial spread betting rate of 3 per cent. would represent an increase on the historic rate of about two-thirds on the overall tax on the industry?

Stephen Timms: I reassure the Committee that the measure is not about short-term revenue maximisation for the Treasury. Our aim was to secure not only an attractive stream of revenue for the Exchequer in the long term but, more importantly, a strong industry. That concern applied to spread betting, which is the smaller part of the industry, and to the wider betting industry as well. I want a successful UK-based spread betting industry that benefits from the new regime, along with the wider betting industry. The objective of the exercise has been to establish a tax arrangement that is fair to all the industry players. It has not been particularly about continuity with the past but establishing a level playing field for the future.
 We recognised that spread bet bookmakers face higher operating costs. Analysis of a large sample of bookmakers' returns indicates that there are very few instances in which a fixed odds bookmaker makes a loss in any month—a point made by the hon. Member for Croydon, South—and actually few months in which a sports spread bet bookmaker makes a loss, either. It is true that losses in a given month for financial spread bet bookmakers are more likely, but they are still relatively uncommon. However, some of those who are involved in the industry might not be aware that the law currently allows individual bookmakers or classes of bookmakers to apply to Customs and Excise for longer accounting periods. Customs and Excise will work with the trade to agree the criteria for the use of longer accounting periods to ensure that they are used only where there is a need and not as a means of duty avoidance. That arrangement will meet much, if not all, of the concern behind amendment Nos. 4 and 5. In the past year, one financial spread bet bookmaker made a net loss for three months running but had to pay tax on its turnover. Under the new system, no tax would have been payable in those circumstances, so there is an improvement over the present arrangement. 
 I have just one minor point in conclusion. There is a technical error in the drafting of the amendment so that it would not actually deliver its intention. However, the substance is clear, and I hope that I have responded to it.

Richard Ottaway: The Financial Secretary will be amused to know that a certain amount of deliberation took place as to whether the wording should be ``minus'' or ``plus''. Our view was that two minuses made a plus. None the less, I think he takes the point.
 In dealing with the first group of amendments in respect of the levy of 10 per cent. on sports and 3 per cent. on financials, the Financial Secretary said that his objective is not to maximise Treasury revenues. However, the evidence that I presented indicates that that will be the case. He has been generous with my second group of amendments, but I hope that he will reconsider the first group, if he is not seeking to maximise revenues and if he wants to be fair to all players in the industry. The fixed odds people do not think that they will pay any more in proportion to turnover—we all agree that turnover will increase—and they believe that they will have a level playing field. However, the spread betting people think that they will be paying more and that they will be treated unfairly. The Financial Secretary genuinely believes that that will not happen. None the less, if it does, would he undertake to hear representations from the industry after, say, a year and perhaps give them some comfort, if it turns out that he is wrong and I am right? 
 As far as the second amendments are concerned, he is being very fair about the accounting periods, and I am sure that the industry will be pleased to hear that Customs and Excise are open to representations. We are content on that point.

Stephen Timms: Given that we expect a loss of revenue of £45 million more in the first full year of the new arrangements, it should be clear that the exercise is not about increasing income to the Treasury in the short term. Neither do we intend to increase revenue from a particular sector. We have tried to come up with an arrangement that is fair to everyone. That does not mean that we expect that everyone will pay the same in future. It is our view that the duty charged on spread betting has been low compared with what is charged elsewhere. The figures in the Bill, which are endorsed by the Nottingham research, reflect that view. The hon. Gentleman asked me whether after a year I would be prepared to have a look at how things are working out and assess the impact on the industry. I am grateful that he thinks that I will still be in a position to do that then and, yes, I would be glad to so.

Richard Ottaway: I am grateful. If I am sitting in the Financial Secretary's office, I shall do the same. There is a slight innuendo in what the Minister just said. The Treasury's view is that spread betting has been getting off rather lightly and they are trying to bring it up. That is a completely different argument and slightly inconsistent with his level-playing-field point of view. It is the nature of any tax change that there will be winners and losers. We can let it rest that the spread betting people feel that they are marginal losers.
 Question put and agreed to. 
 Clause 6 ordered to stand part of the Bill. 
 Schedule 1 agreed to. 
 Clause 7 ordered to stand part of the Bill.

Clause 8 - Threshold for reduced general rate

Question proposed, That the clause stand part of the Bill.

James Clappison: It is tempting to let this pass as it involves a reduction in vehicle excise duty, but I cannot do so without putting the reduction into some sort of context, given the remarks that Ministers have made about similar proposals. The clause would extend the scope of the lower rate of vehicle excise duty from 1,200 cu cm cars to 1,549 cu cm cars. The change will take effect on 1 July but it will be backdated to November 2000. The clause provides for a system of rebates.
 I hope that the Minister will accept that the background to that is the pressure under which the Government came last autumn. The change must be set in the context of what took place before then. In the Budget last year the reduced vehicle excise duty rate was extended to cars with engines up to 1,200 cu cm. When last year's Finance Bill was being considered in Committee the Liberal Democrats moved an amendment to extend that reduced rate to cars with engines up to 1,400 cu cm. The Financial Secretary rejected the amendment saying that it was not well targeted, environmentally or otherwise and that as it would apply to almost half the cars on the road it would cost about £290 million more than the extension of the threshold 
 Given that what is proposed is an extension not just up 1,400 cu cm but to 1,549 cu cm, it would be interesting to know what change in environmental factors between May and November of last year led to a change in Government thinking. At the time of the pre-Budget statement when the Chancellor announced the reduced rate for vehicles up to 1,549 cu cm, the number of additional vehicles brought into the reduced rate had gone from being the vice that it had been in May, when the Financial Secretary addressed the Committee, to being a positive virtue, because on the day of the statement the Chancellor told us: 
 ``All those who have a car from 1200cc to 1500 cc—that is, an extra 5 million cars—will be entitled to £55 off their annual licence fee from today.'' 
The Chancellor gave his rationale for the policy shift that had taken place as a wish to provide greater choice for rural dwellers: 
``many—especially those in rural areas—have put it to me that greater choice would be available to rural motorists and motorists generally if the £55 deduction could be accessible not only for cars under 1200 cc, but for cars up to 1500 cc, including the Focus, Golf, Astra, Escort and Rover 214.''—[Official Report, 8 November 2000; Vol. 356, c. 323.] 
I look forward to the Financial Secretary's reaction, and am tempted to speculate on the basis of the Chancellor's statement whether Ministers had hitherto been unaware that it was possible for those who live in the country to purchase and drive the Focus, Golf, Astra, Escort and Rover 214. One imagines that Ministers, even in this Government of city dwellers, may have been aware that those possibilities were open to them. [Interruption] No doubt the Financial Secretary will put me right. I suggest to him that, while country dwellers may not be concerned about their choice of car—and it was country dwellers that the Financial Secretary said he was responding to—and, to be fair, I am sure that they would be grateful to the Chancellor for being considerate about that choice, they are certainly concerned that they have no choice about the cost of the petrol they put inside those cars, and the fact that so much of that cost arises from tax and duty. That, however, is another story. 
 Can the Minister tell us the rationale for the policy shift that is so dramatic compared to the attitude of the Government last May?

Michael Jack: I rise to pass an observation on the logic behind the proposal. When the change to excise duty was originally introduced, the Government told us that it was intended to encourage cars that had low carbon dioxide emissions. Yet we found that cars included in the original proposals produced higher carbon dioxide emissions than those excluded. The original argument was that the reduction in vehicle excise duty would in some way cause people to change their buying arrangements. However, the new arrangements at £55 a year are the equivalent of a saving of £165 over three years. That will not have a substantial effect on the car-buying decisions of those who pay for their cars out of their own pockets.
 The proposal moves the threshold from 1,200 cu cm, which seems an entirely arbitrary figure anyway, to 1,549 cu cm. I am intrigued by 1,549 cu cm. Why 1,549 cu cm? Can the Financial Secretary give a detailed explanation as to why not 1,500 cu cm, or 1,449 cu cm or any other number? Why not relate the revised arrangement to the carbon dioxide emissions of cars, particularly of new ones, where the data are readily available? If the Government wanted to prove their green credentials, they would have proposed a different arrangement.

Stephen Timms: I remind the hon. Gentleman that we agreed in last year's Finance Bill that VED for new cars would be charged on the basis of CO2 emissions, and that has taken effect. That arrangement applies to older cars for which data are not readily available.

Michael Jack: I do not know where new cars are concerned, but the arrangement appears arbitrary. I am always interested to know how decisions are reached. Perhaps the Financial Secretary will tell us why 1,549 cu cm was alighted on. For older cars, why is not the proposal for petrol as generous as for diesel? Many diesel car engines have more cubic centimetres than that, because they have a lower brake horsepower output, but have lower CO2 outputs than vehicles that benefit from the proposals. It appears somewhat harsh, if the Government's real interest is in carbon dioxide emissions, to hit diesel cars.
 I should have said, incidentally, that I run a diesel car, so I have some experience of the matter, but I do not plead the case from a selfish point of view; I plead it from the rational point of view of the stated objective, which was supposedly to reduce carbon dioxide emissions.

Stephen Timms: The clause will indeed raise the engine size threshold below which the lower rate of VED—£105—is levied to 1,549 cu cm from 1 July. That means that 5.7 million additional cars will be taxed at the lower rate and the extension will be backdated to November.
 That is the next stage of the reform of car vehicle excise duty that we have put in place during recent years. We started in June 1999 with a low rate for cars of below 1,100 cu cm; that rose to 1,200 cu cm on 1 March this year, backdated to March 2000. The Driver and Vehicle Licensing Agency recently wrote to about 3 million keepers of vehicles between 1,100 cu cm and 1,200 cu cm, and is currently making payments against licences for those cars taken out between March 2000 and February 2001. As I said, new cars registered on or after 1 March this year are taxed directly on the basis of their CO2 emissions—I shall return to the point raised by the right hon. Member for Fylde in a moment—the latest change taking effect on 1 July and being backdated to November.

James Clappison: Has the Financial Secretary received correspondence from people who licensed their cars after 1 July last year—say last September or October, just before the announcement—during the period that was covered by the backdating but who were not eligible for it?

Stephen Timms: I cannot recall any letters specifically on that point, although there is certainly a great deal of interest in the matter. In a moment, when I respond to the point made by the right hon. Member for Fylde, I shall refer to some of the issues of boundaries, which certainly excite a good deal of attention, especially concerning the VED arrangements. In this case, the DVLA will write to everybody with cars of between 1,200 and 1,549 cu cm engines who have taken out licences between November 2000 and June 2001, inviting them to apply for a rebate against those licences. Those who have taken out a 12-month licence will receive £55; those with six month licences will receive £27.50.
 The hon. Gentleman asked me: why this change of heart since our debate on the subject just under a year ago? The Government has of course listened to the concerns of rural and low-income drivers. We have received a large number of representations about the matter. Especial concern was prompted by the increase in petrol prices caused by the increase in crude oil prices last year, and this is one element in the package of the Government's response. We have listened and made a change that has been widely welcomed. I would hope that all members of the Committee would agree that the Government should be listening to what people say and making changes in response.

Michael Jack: Will the Financial Secretary give way?

Stephen Timms: Let me make a little more progress, because I want to answer the right hon. Gentleman's questions in a moment. He asked specifically why we had chosen the figure of 1,549 cu cm and whether that was an arbitrary choice. Eagle-eyed members of the Committee may have spotted that the figure announced in the pre-Budget report in November was 1,500 cu cm. The Budget figure was higher at 1,549 cu cm.
 When we first introduced the 1,100 cu cm threshold, Members of Parliament received many letters from constituents who drove 1,107 cu cm, 1,103 cu cm or other cars with engines slightly above the 1,100 cu cm threshold. They were angry that they were missing out on the lower rate. We were anxious to ensure that a similar problem did not arise with the present raising of the threshold. Now anyone driving a 1.5 litre car will benefit from the change. The increase from 1,500 cu cm to 1,549 cu cm brings 80,000 additional vehicles into the scheme. If we had stuck with the 1,500 figure, a significant proportion of those 80,000 would have been writing to their Members of Parliament to complain that they were missing out on the concession. We have addressed the problem, so I hope that no one will feel hard done by. 
 The right hon. Member for Fylde said that the change would not have much effect. From the letters across my desk, I know that people feel strongly about these matters and I suspect that this signal is effective in making people think about what car to buy. Some people have changed their decision accordingly, so we should not underestimate the potency of this measure as an incentive to opt for smaller cars. 
 The right hon. Gentleman asked about CO2 emissions as an alternative basis, but the data about emissions from older cars are inadequate. It is now a requirement that the figure appears on the registration document to make it easy for everyone to understand how much they will have to pay for new cars under the new scheme. As similar data for older cars are unavailable, such a system would be much more complicated, costly and bureaucratic process—and feasible only for cars made since 1997. In view of the difficulties, we decided that it was not worth while to proceed on the basis of CO2 emissions. 
 The right hon. Gentleman also asked about diesel. Diesel's position is fairly reflected under the new arrangements. Again, we did not want to introduce a complex system for older cars and, although it is not a perfect measurement, the size of a vehicle's engine is not a bad proxy for its environmental impact. 
 The clause provides relief and offers a significant additional tax deduction for car drivers. Car drivers have warmly welcomed it, and I hope that the Committee will, too.

Michael Jack: I restrained myself from intervening on the Financial Secretary, who was kind enough to answer some of my earlier points, but I want to put on the record the fact that I found his comments interesting. He established a principle in which a minority group, in this case rural motorists—no definition was given as to who or what they were—managed to persuade the Treasury to alter universal car taxation for their benefit. I welcome that suggestion but it will be interesting to know what is the deadweight cost for the help that has been given to the urban motorist to achieve a clearly stated policy objective to assist the rural motorist. I am so intrigued by that that I shall write to Sir John Bourn of the National Audit Office asking him to evaluate the point.

Stephen Timms: I referred to rural and low-income motorists. Is the right hon. Gentleman suggesting that we should have different rates of vehicle excise duty for rural and non-rural motorist? Neither I, nor the right hon. Gentleman—who is a former Treasury Minister—would favour such action.

Michael Jack: I take the hon. Gentleman's point. His emphasis was low-income motorists and we shall ask for that analysis. There are a fair number of deadweight costs but I shall not detain the Committee further on the matter.
 Question put and agreed to. 
 Clause 8 ordered to stand part of the Bill.

Clause 9 - Rates of duty for goods vehicles

Question proposed, That the clause stand part of the Bill.

James Clappison: We now come to the changes in excise duty relating to goods vehicles, which will be of interest to the road haulage industry. I cannot let the matter pass without making a few remarks about the industry and its state.
 The changes in clause 9 were announced by the Chancellor as part of the package in his pre-Budget report, in response to the pressures that I described in the previous debate. At the time of the pre-Budget Report, the Chancellor said that the changes were equivalent in value to a cut of 3p in the price of diesel to the haulage industry. However, that 3p is only a small fraction of the total increase in the cost of diesel that has come about since the Government came to office, an increase that has meant that British hauliers are at a significant disadvantage compared with their European counterparts. British diesel prices are still the highest in Europe by some distance; they are substantially higher than they were in 1997 and three quarters of that price is made up of tax and duty. 
 That disparity is particularly significant in Northern Ireland. According to road fuel prices supplied by the House of Commons Library for 9 April, diesel is 47p a litre in the Republic of Ireland and 77p a litre in the North. The Minister will have seen the interesting article in yesterday's Financial Times outlining the effect on the petrol and diesel retailing industry of disparity in the North. Industry has gone into decline and smuggling is taking its place, controlled by groups in the Province. 
 Given that the changes are said to be part of a package to help the haulage industry in the face of European competition, has the Minister any statistics for the increase in the number of foreign trucks operating in the United Kingdom in the past four years? Will he also address the question of cabotage, by which foreign firms operate in the domestic business carrying freight from one destination to another in the United Kingdom? What is the extent to which foreign hauliers are taking a share of the internal United Kingdom market? 
 We were told in the pre-Budget statement that the Chancellor wanted to introduce a vignette system under which non-British companies and lorries would pay their share to Britain for using British roads. The Chancellor apparently adopted it in his pre-Budget statement, although he did not mention it. An accompanying press notice stated that the Government had consulted on the matter and that they would continue to develop their plans to set up a vignette in the coming months. Given that we have been calling for such a system, we should be grateful if the Financial Secretary would tell us what is happening about it. 
 On the detail of the proposed changes, I ask the Financial Secretary to consider one category of vehicle in particular. I appreciate that several categories relate to goods vehicles and vehicle excise duty. However, I invite the Financial Secretary to give an account of the history of one such vehicle and the reasons for the Government's thinking on the matter. The 40-tonne vehicle on five axles has only recently been allowed on to United Kingdom roads following a European Union directive. The UK Government took the view that that particular lorry causes much more wear and tear on UK roads than the previously permitted and common 38-tonne lorry. I cannot give the technical reasons for that, but the Government have previously placed that fact on the record. 
 The wear and tear is so great that the 1999 Budget set a relatively high rate of vehicle excise duty for 40-tonne five-axle lorries. That rate was £5,750, compared with £3,210 for 38-tonne five-axle lorries—a significant differential. A press notice said that it was set at that rate 
``to discourage strongly the use of these vehicles in view of the additional road damage that they cause''. 
The 2000 Budget reduced the rate for the 40-tonne lorry to £3,950, and this year's Budget will reduce it further to £1,850 from December 2001. In view of that dramatic change of the 40-tonne lorry's position in vehicle excise duty, will the Financial Secretary say whether the environmental factors that were enunciated in 1999 and the effect on British roads still apply? Why have both the absolute VED for the 40-tonnes vehicle and the differential with the more common 38-tonne lorry fallen? We would appreciate an outline of the Government's thinking, given that they previously said that the 40-tonne lorry causes wear and tear to, and expense for, our roads.

Howard Flight: I hope that all hon. Members are uncomfortable with a situation in which British trade or industry is put at an unnecessary competitive disadvantage to international competitors. The Minister will know that the British haulage industry has suffered badly during the past five or six years. Its costs have increased by some 16 per cent. since 1997 alone, and its profit margins range from 0 to 2 per cent. depending on the operators. Domestic trade has seen a substantial invasion by continental operators, which have increased their business by around 60 per cent. in Britain in the past five years. I recollect a KPMG study of two years ago that examined plusses and minuses for the British industry; it could point only to some labour cost advantages. Those are now under threat and there is a shortage of applicants for jobs because lorry drivers' pay is low compared with that in continental Europe.
 In their consultations with the industry and representative bodies, were the Government able to argue that the proposal for a significant reduction in vehicle duty will restore any semblance of fair competitiveness in operating costs between the domestic industry and the continentals, which come into Britain after topping up with diesel in Calais? Is the reduction likely to shake off some of the bad practices that have gathered momentum—such as UK businesses moving their entire headquarters overseas, which is called changing flags—and some of the more criminal activities, such as the improper use of red diesel? There has been surprisingly little general media coverage. Obviously, the industry is pleased to have cuts. Having cuts is better than not having them, but I suggest that they are merely a temporary buying-off measure unless a robust case can be made that the British haulage industry will be put on a fair and competitive footing.

Harry Barnes: Will my hon. Friend the Financial Secretary respond specifically to the points raised about the situation in Northern Ireland? The United Kingdom has a land border with the Republic of Ireland, and the disparity between duty rates presents many serious problems. It is almost impossible for anyone to run a petrol station in a place such as Belfast without taking in illegal petrol to survive. Many people have turned to illegal forms of activity because of the arrangements there.
 There is a loss to the Revenue, because if people are within 30 or 40 miles of the border, it is worth their while to fill up their vehicles at the stations that have grown up along it. A massive amount of diesel is purchased in the Republic of Ireland, where the duty is paid, and then smuggled into Northern Ireland. Doctored material is also brought in illegally. The Select Committee on Northern Ireland Affairs has produced a report on that. Although we are talking about only 3 per cent. of the population, it is a serious issue.

Stephen Timms: I shall respond first to the points on fuel tax that were made by my hon. Friend the Member for North-East Derbyshire (Mr. Barnes) and the hon. Member for Hertsmere. Those issues were dealt with on the Floor of the House when clauses 1 and 2, which deal with fuel duty, were debated. I am certainly aware of the problem in Northern Ireland; Customs and Excise has substantially increased the number of officials working on it. The information that I have from people involved in Northern Ireland is that the extra effort seems to be having a significant impact.
 The hon. Member for East Londonderry (Mr. Ross) observed in the Chamber on Monday that the way in which the border has been regulated as a result of the difficulties with foot and mouth seems also to have had a significant impact on reducing the amount of illicit fuel crossing the border. I certainly recognise that that is a serious issue. I have seen petrol stations in rural parts of Northern Ireland selling petrol remarkably cheaply. I wondered how they could do that and guessed what the answer was. Resources are being dedicated to dealing with the problem, and we hope that it will be brought under control. 
 I shall focus on the issues around vehicle excise duty for lorries, to which this clause relates. The Budget contained a 3p a litre reduction in the price of diesel, but the figure for the whole package, to which I think the hon. Member for Hertsmere referred, is 7p a litre. The reduction is not just 3p if we take account of the full package, which includes the measures on lorry VED and the road haulage modernisation fund. 
 We are talking about a fundamental reform of the structure of VED for lorries. We consulted the industry on the principles of reform through our public consultation and through the Road Haulage Forum, which has been meeting for well over a year and at which I have represented the Treasury. Those principles have received wide support. 
 The competitive position of the UK haulage industry compared with continental European industries, taking full account of all the factors such as labour costs, social costs and corporation tax, which is apparently much lower here, is not at all bad. That was the position before these changes. However, we are making a substantial further reduction in the burden of taxation on road hauliers to improve the competitive position of the UK haulage industry, reducing the tax burden on that industry by £300 million and bringing the UK rates for lorry VED down to among the lowest in Europe for the cleanest lorries. 
 I was asked how much cabotage there was in the UK. We commissioned some work on that in the Road Haulage Forum and it appears that the figure is very small. The survey was carried out in the early part of last year and showed that 0.06 per cent. of domestic haulage is carried by non-UK lorries. There was a good deal of surprise about that but the methodology for that survey was carefully agreed with the industry organisations. There are many non-UK lorries on UK roads but they are not generally doing domestic haulage work: they bring goods into, or carry exports from, the UK. The proportion of cabotage is extremely small. 
 We are reducing the tax burden, bringing UK rates down to among the lowest in Europe for the cleanest lorries. Secondly, instead of the more than 100 tax rates that have applied in the past, the new system contains seven broad bands. It will mean greater flexibility for operators who will be able to operate at a wider range of different vehicle weights and axle configurations without the need to re-plate and re-license. That is an important step, but we will continue, in consultation with the industry, to look for ways in which the administration of lorry VED can be modernised to reduce further the administrative burden on hauliers. 
 The new system provides strong signals to hauliers about the environmental impacts and the road wear caused by their vehicles. It builds heavily on the important work that was commissioned by the Department of the Environment, Transport and the Regions from National Economic Research Associates. It produced a methodology for assessing those environmental impacts and road wear. Its work is reflected in this new structure, which will come into effect on 1 December. Until then, the interim arrangements for lorry VED, introduced from 1 December last year, will continue to apply where there is, subject to the minimum rates, a straightforward halving of the lorry VED that was being paid. That is a substantial change. 
 The hon. Member for Hertsmere asked me about the proposed vignette scheme. We remain committed to the principle that all lorries should contribute towards the costs that they impose in the UK. The priority that we have set in this work has been on the introduction of the lorry VED reforms and the rebate scheme, because they will be of immediate benefit to the haulage industry and certainly reflected the industry's priority. We have had some useful discussions on the introduction of a road user charge with industry representatives. We are continuing to examine the options necessary for setting up such a scheme. The new structure of VED has been designed to take account of the requirements of EC directive 62/99, which sets out both the parameters governing a vignette scheme and the minimum rates of VED. That work will continue. 
 The hon. Gentleman asked me about the way in which 40-tonne, five-axle vehicles have been dealt with. I repeat that the new rates reflect several factors, including the research that I mentioned on road wear and environmental impacts of different types of lorry, which have influenced our thinking. We closely considered the treatment of 40-tonne lorries. During last year's Budget process, we were especially concerned about the competitive position of United Kingdom hauliers operating such lorries compared to continental operators. It was concern on that score that led to the significant change in last year's Budget to which the hon. Gentleman rightly drew attention. The new information about road wear and environmental impact and our concern to reduce the level of lorry bed close to European Union minimums for the cleanest lorries are the factors that have determined our decision.

James Clappison: On the last point, I must say that the technical side of the 40-tonne lorry is something of a mystery to me, but I took the Government at their word when they said in 1999 that, for some reason, the 40-tonne, five-axle lorry caused especial wear and tear on the roads. I should imagine that, if that were so then, the same applies today. No doubt those who are involved in such matters will want carefully to consider the Financial Secretary's words, but I am not sure that they provide a complete explanation. It appears that the concern that the Government themselves reflected by their differential rate for 40-tonne lorries has been allowed to subside, as the duty will be dramatically reduced.
 I invite the Financial Secretary to take on board the comments made by the hon. Member for North-East Derbyshire in a previous debate about the effect of market forces on observation of the law. I do not want to go back over that ground, but when the differential in price is as striking—especially across a land border—as 30p a litre, that creates enormous strain, given the law and order situation in that part of the world. I hope that the Government will reflect on that. If foot and mouth has by coincidence brought about greater law enforcement, that is a good thing, but the underlying situation is serious, as the disappearance of petrol stations and the general state of trade in Northern Ireland attest. 
 I invite the Financial Secretary to consider that matter, which does not only affect Ireland, where the price difference is striking. United Kingdom firms face competition from foreign firms throughout Europe that pay much cheaper diesel prices. We have the highest prices by a mile, and whatever relief and mitigation the measure will give is only a fraction of the price difference under which United Kingdom firms must labour when competing with foreign firms. Across the channel, the pump price of diesel is 27p a litre cheaper. If companies go further afield, they can find even cheaper rates. Our diesel rate is by a long way the highest in Europe and has the greatest tax and duty component. It is because of that tax and duty that United Kingdom firms are in such a difficult competitive position. As we have made clear, we will continue closely to monitor the effects on the United Kingdom haulage industry of that desperate competitive position. 
 Question put and agreed to. 
 Clause 9 ordered to stand part of the Bill. 
 Schedule 2 agreed to. 
 Clauses 10 to 12 ordered to stand part of the Bill.

Clause 13 - Exemption of agricultural etc.vehicles

Question proposed, That the clause stand part of the Bill

Michael Jack: I seek the Financial Secretary's help on a constituency matter. One of my constituents, Mr. Marcus, is able to use a modern farm tractor for activities on and off the road. He has experienced considerable difficulties with the tax regime when his tractor changes from agricultural to haulage uses. I put down a marker here: as people in the rural economy seek innovative ways to use capital equipment at times of difficulty, anomalies may emerge. I shall write to the Financial Secretary and ask him to review Mr. Marcus's case with a view to helping people in the rural economy who are developing more entrepreneurial uses of their farming equipment.

Stephen Timms: I would be happy to consider the right hon. Gentleman's letter. We must be careful not to create a competitive difficulty when people carrying out rural haulage services find a different way of providing those services that works to their disadvantage. I shall certainly examine carefully the case of the right hon. Gentleman's constituent.
 Question put and agreed to. 
 Clause 13 ordered to stand part of the Bill. 
 Clause 14 ordered to stand part of the Bill.

Clause 15 - Payments by Commissioners in case of error or delay

Question proposed, That the clause stand part of the Bill.

Richard Ottaway: I shall not detain the Committee long. The Economic Secretary was not present at the aggregates levy debate on the Floor of the House, but the clause reminds me of it. Can she provide some background to the clause? Why are payments by commissioners in cases of error and delay relevant and what has happened up to now? Commissioners have made errors and delays in the past, so what is new about the clause?

Melanie Johnson: The clause and the schedule provide for the payment of compensatory interests where excise duty has been overpaid or underpaid as a result of an error by Customs and Excise or where the payment of a claim to excise duty has been unduly delayed. It also provides for the repayment of excise duty or compensatory interest to persons or businesses incorrectly refused authorisation, approval or entitlement to goods relieved of excise duty.
 The measure brings excise duties into line with other duties and taxes administered by Customs and Excise by providing a statutory requirement to pay compensatory interest. The difference is that provisions for tribunals to take measures have existed in the past, but there will now be a statutory requirement. Traders in excise goods have welcomed the measure and I hope that the Committee will support it.

Richard Ottaway: I am grateful to the Economic Secretary and would not disagree with her verdict. Would she confirm that the point is about shifting from a power possessed by tribunals to a statutory power of commissioners?

Melanie Johnson: I could write to the hon. Gentleman on that, but I believe that rates can be set by a value added tax and duties tribunal in judging individual cases, whereas the rate of interest will be determined by regulations set out in 1998 in respect of interest rates used for other indirect taxes. As the hon. Gentleman will be aware, the rate is 5 per cent. As I said, that is a discretionary power, whereas the provision in the clause is statutory.
 Question put and agreed to. 
 Clause 15 ordered to stand part of the Bill. 
 Schedule 3 agreed to.

Clause 54 - Charge and main rate for financial year 2002

Question proposed, That the clause stand part of the Bill.

Richard Ottaway: I want a general debate on corporation tax in the remaining minutes of the sitting, but I am not sure whether it should be discussed under clauses 54, 55 or 56.

Jimmy Hood: Order. I suggest that the hon. Gentleman finds out quickly, as I am about to put the question on clause 54.

Richard Ottaway: I am grateful for your assistance and guidance, Mr. Hood.
 On the face of it, the proposal is a planned announcement of the level of corporation tax levied on Britain's corporations. The Prime Minister repeatedly says that he is proud of the fact that he has reduced the headline level of corporation tax from 33 per cent. to 30 per cent. That appears to be a laudable claim; it is the sort of thing that Baroness Thatcher might be proud to say. But when one looks at the small print, and sees what is actually happening to the level of taxation on companies, the opposite is the case. The Chancellor's figures in table C7 on page 192 of the Red Book, show corporation tax rising by £5.7 billion from £32.1 billion in 2000-01 to £37.8 billion in 2001-02. The Chancellor could easily have chosen to moderate those vast increases by raising the corporation tax thresholds at least in line with inflation or by cutting other taxes for business, which is what the Government said they would do. The Labour party business manifesto in April 1997 stated: 
 ``We will not impose burdensome regulations on business, because we understand that successful businesses must keep costs down''. 
What absolute codswallop! What effort have the Government made to keep that pledge to the electorate? The manifesto continued: 
 ``We will cut unnecessary red tape''. 
In his speech at the Mansion House in February, the Secretary of State for Trade and Industry said: 
 ``I guarantee that we will not allow regulation to stifle enterprise and innovation''. 
At the annual dinner of the Confederation of British Industry, the Prime Minister said: 
 ``Enterprise should be encouraged through a climate for business and a tax system which rewards success.'' 
The Chancellor was reported as saying that he wanted tax cuts for business, not tax rises. 
 The Government have singularly failed to keep any of those pledges; they have increased the burden on businesses and the level of taxation on companies. Members of the Committee need not take it from me, they can listen to the Confederation of British Industry—the voice of British industry. Commenting on the financial burdens that the Government have piled on business, Digby Jones, director general of the CBI said: 
 ``Enough is enough. I really do say to the Government `no more'''. 
What state have we reached when the director general of the CBI has to go to the Government and say ``Enough is enough'' after their pledges during the election campaign? Mr. Digby Jones also said: 
 ``Ministers must do more to roll back the burden of business taxation, which has gone up £5 billion a year during this parliament''. 
The CBI pre-Budget report submission complained of the 
``hike in business taxation since 1997''. 
It stated: 
 ``We believe that several recent policy proposals are potentially damaging and must be amended.'' 
It is not only the CBI that holds those views. Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union said: 
 ``We're not against taxation, but do you really hit business with new taxes when industry is already under pressure from the pound? Business should be treated more fairly.'' 
The Government are quiet when it comes to quotations like that from their own supporters. Those are the sorts of quotations that count, and the ones that they should be listening to. There is no doubt that the Government have done nothing but raise the levels of taxation and regulation on business. They cannot be proud of the burdens that British industry has to face today. It is a travesty for them to stand here quietly hoping that we would slip through the rise in corporation tax before 7 o'clock. The Minister should stand up and tell us what he is actually doing for business.

Peter Kilfoyle: Does the hon. Gentleman accept that many of us would like us to see corporation tax rise even more?

Richard Ottaway: There speaks the truth. I respect the hon. Gentleman. There are not many hon. Members who have resigned from governments on points of principle. He speaks for the heartlands of the Labour party, and has seen that his party supporters are now paying more for their cars, cigarettes, and pint in the pub. He has seen tax rises on his supporters quite consistently over the past three years. The country's tax burden has been regressive and is hitting his supporters worst of all.

Peter Kilfoyle: I thank the hon. Gentleman for his warm words, but will he take it from me that what the people that I represent have seen is the establishment of Tory-free zones, simply because they have no faith in the Opposition's plans to deliver anything material in their lives?

Richard Ottaway: What the hon. Gentleman needs is a few Tories around the place. It is the Conservative party that stands up for lower taxation, that voted against the tax rises and stood up for his supporters. Unless he breaks ranks and votes against this wretched Government, he will be replaced by a Conservative Member of Parliament. That is the consequence of the Government's levels of taxation.
 I return to corporation tax. We are not happy about the levels of tax on business. The Minister should be announcing a whole raft of proposals that will relieve the burden of taxation on business. He should be seeing cuts on the motoring costs of business. [Interruption.]

Jimmy Hood: Order. Hon. Members should listen a little more, and speak a little less.

Richard Ottaway: The Minister should be announcing business rate relief; reforms of capital gains tax, share options, and venture capital; the abolition of the ridiculous double taxation relief proposals. He should repeal IR35 and replace it with more appropriate regulations. Those are the proposals of the Conservative party manifesto for the next general election. We are the party that believes in business, fights for business and stands up for business.

Michael Jack: My contribution on corporation tax will not match the wonderful and aggressive speech of my hon. Friend.

Jimmy Hood: Order. I suggest to the right hon. Gentleman that if he wants to make a speech on corporation tax, he relates it to clause 56.

Michael Jack: On a point of order, Mr. Hood. I seek your guidance. I understood that we were speaking to clause 54, and that we were to debate the main rate of corporation tax at 30 per cent. Is my assumption correct?

Jimmy Hood: The right hon. Gentleman is welcome to pursue his line, but he indicated that he was going to trespass into clause 56. I was trying to assist him.

Michael Jack: I am not going to make a speech about the starting rate at 10 per cent. of corporation tax, the subject of clause 56. I want to look at the consequences of clause 54, which confirms that corporation tax will be charged for the financial year 2002 at a rate of 30 per cent. Intriguingly, the Red Book estimates corporation tax income for the financial year 2000-01 at £32.1 billion. The figure is £37.8 billion for the present financial year ending in 2002. Unfortunately, although the Government are inviting the Committee to confirm the rate at 30 per cent. for 2002, we have no idea what the economic consequences of that will be, because the Red Book does not appear to have a number against it.
 I make that point in all seriousness, because we have seen a large number of profit warnings from British industry as it tries to cope with the downturn in world markets. Despite the Chancellor of the Exchequer's almost saying that the United Kingdom is insulated from developments in the world, the Committee is being invited to agree clause 54 in an information vacuum. We have no idea of the effects on the Revenue of a 30 per cent. main rate for corporation tax in the light of a worsening corporate financial situation. Will the Economic Secretary give the projection for corporation tax that will be raised in the financial year 2002-03 as a result of the 30 per cent. rate? How does it compare with the figures that I have given. 
 It is revealing that, on non-North sea corporation tax as a percentage of GDP, the Treasury is prepared to be a little more adventurous, in that table C9 of the Red Book gives an indication of the tax burden on business. In the financial year 2002-03, which is the subject of the clause, the tax burden on industry will remain constant at 3.4 per cent. Intriguingly, it will drop to 3.2 per cent. in the following financial year but rise thereafter. In the light of my query about the effect of the downturn in profitability, what assumptions lie behind those calculations? Assuming that the contents of clause 54 are maintained, the longer-term prospect—business likes to plan for the long term—is that business can look forward to a rising burden of taxation. 
 I apologise to the Committee for not declaring an interest as a non-executive director of a public limited company that pays corporation tax—[Interruption.] I remind those who question that that I declared my interests at the beginning of the Second Reading debate. I declare them again now. There is no material interest, because it says that there will be no change, and I propose no change. 
 Companies must pay mainstream corporation tax on a quarterly forecast basis. Will the Economic Secretary say how the revenues from corporation tax are projected with quarterly forecasting? Has the reality of today's estimates from companies shown to the Inland Revenue and therefore the Treasury started to move away from previous estimates that it had? I am anxious to know whether there will be an effect on the public purse of the declining profits on which the 30 per cent. corporation tax will be levied.

Edward Davey: The right hon. Gentleman is advancing an interesting argument, but I am not sure whether, in the cold light of day, he would agree with the ultimate logic of what he is saying. Is he really suggesting that corporation tax rates should go up and down over the cycle if the yield of corporation tax to the Exchequer goes up and down in relation to that cycle?

Michael Jack: No, I am certainly not suggesting that, because business requires a stable tax environment to undertake its planning. I asked my questions because we are being asked to agree a tax rate for 2002-03 in an information vacuum. Given that corporation tax is projected to yield £37.8 billion in the current financial year, I am interested in the effect of a diminution of revenue on the overall public finances. The Chancellor has said that they are robust; I want to probe and establish how robust they are in the light of reality.
 Will the Economic Secretary be kind enough to comment on the relevant mainstream corporation tax issues raised by the CBI in its February 2001 report, entitled ``Business priorities for Budget 2001''? Paragraph 16 says: 
 ``There have been a number of unwelcome surprises with regard to corporation tax since Labour came into office''. 
It goes on to list those surprises and then comments: 
 ``The CBI would argue very strongly that there is now a clear case for avoiding further shocks and giving some breathing space to take account of the impact of all these changes on the UK's international competitive position.'' 
It is clear that the CBI has taken into account such factors as previous changes on double taxation relief, controlled foreign companies taxation and the abolition of dividend credit taxes, and that it is feeling the pinch in competitiveness. It is all right for the Government to say that we should stick at 30 per cent., but business feels that its competitiveness, notwithstanding the proposal, has been adversely affected by the way in which the Government have dealt with corporation tax. I will be grateful if the Economic Secretary responds to those representations.

Melanie Johnson: I welcome you to the Chair, Mr. Hood.
 We will maintain the corporation tax rate at the present 30 per cent. but we have reduced it twice since taking office—from 33 to 31 per cent. in 1997 and from 31 to 30 per cent. in April 1999. Our record on that is good. 
 I doubt that I will be able to address in the time available all the points that have been raised, but I will start with international competitiveness. The right hon. Member for Fylde has many concerns about that, but all Labour Members can be proud of our record. If we examine the tax paid by businesses, the UK compares extremely well with other Organisation for Economic Co-operation and Development and European Union member countries. We have reduced corporation tax to the lowest levels in UK history, and the total savings to companies from our tax cuts will be worth more than £3 billion per annum. Our top rate is just 30 per cent., while Germany, France, Japan and the United States of America all have effective top rates of around 40 per cent. That is based on additions of local taxes; for example, depending on the regions, corporation tax varies between 36 and 41 per cent. in Germany, between 35 and 36 per cent. in France, more than 40 per cent. in Japan and 35 per cent. in the USA—although there are a number of state taxes on top of that.

Andrew Tyrie: Will the Economic Secretary give way?

Melanie Johnson: I shall, but I have only five minutes in which to respond.

Andrew Tyrie: Does the Economic Secretary agree that we should take into account not only rates, but reliefs and allowances? Will she say whether she thinks that competitiveness should be defined by rates or by overall yield?

Melanie Johnson: We can examine the problem from a number of points of view, but, if we use company taxes as a percentage of expenditure based on gross domestic product in 1998, UK costs compare extremely well with those of France and Germany. Our overall position with those figures, which include corporate taxes, employers' social security contributions and other payments, is 9.4 per cent., compared with 17.5 per cent. in France and 9.2 per cent. in Germany. The EU average is 11.5 per cent.

Richard Ottaway: The Minister is praying all those figures in aid of Britain's competitiveness position. Will she explain why we have just slipped from 15th to 19th in the competitiveness league, behind Taiwan and Israel?

Melanie Johnson: That is a ridiculous assertion. In the hon. Gentleman's opening remarks, he disregarded entirely the extraordinarily favourable environment that we have created in the UK for businesses to flourish and the fact that we now have the lowest—[Interruption.]

Jimmy Hood: Order. Hon. Members must calm down.

Melanie Johnson: Thank you, Mr. Hood.
 We now have the lowest inflation and interest rates, and the best tax levels for companies for decades. We have increasing employment and company profitability in the UK, as demonstrated by the statistics that I have given. It was interesting that the hon. Member for Croydon, South quoted barely any statistics in advance of his rant about the position of business in the UK. The right hon. Member for Fylde is right; stability is the key element that allows businesses to plan ahead and know where they are. The Government have provided such a framework for British industry, which was entirely disregarded by the hon. Member for Croydon, South. We have a record of which any Government would be delighted to stand in support. 
 Our aim is to do more than just cut corporation tax to its lowest ever levels. Our policies also aim to reinforce the fundamental advantages of investing and producing in the UK.

Michael Jack: I hope that the Economic Secretary will answer my questions about the revenues on corporation tax in the remaining few minutes.

Melanie Johnson: If the right hon. Gentleman keeps intervening, he will make it much harder for me to do so.
 The profits limit was mentioned. A company will get the full benefit of the small companies rate on profits of up to £300,000, but raising the profits limit, so that a company would benefit from the small companies rate on profits of up to £1.5 million, would benefit a relatively small number of businesses. It would not target the smallest companies, which we are keen to ensure are fully supported. The right hon. Gentleman also mentioned projections and forecasts in the Red Book. On page 196, at paragraph C 44, there is a projection of non-North sea corporation tax profits and the expected revenue. Profits are projected to rise by a further £1.5 billion in 2002 and then to fall by almost £0.75 billion in 2003-04. So there is a projection, despite the right hon. Gentleman's suggestion that there is not. 
 We are again setting the main rate a year in advance, to give notice to the small minority of companies that would otherwise have to pay one or two instalments of tax before the rate was set. I return to the point that I made a few minutes ago—that is all about helping British companies to plan ahead and know where they will be and creating a framework that provides stability and certainty. Once the transition to instalments is complete, our cuts in the main rate of corporation tax will have benefited large companies by more than £3 billion a year. 
 Our policy is to promote enterprise by keeping corporation tax low. That allows companies to make long-term investment decisions with confidence and to increase the post-tax returns on investments. Conservative Committee members appear to be objecting to the level of revenue being received, but that is largely a result of the fact that, having cut the corporation tax rate, we are benefiting from the fact that British industry is doing so well at present. Internationally competitive rates of corporation tax also help to maintain this country's position as an attractive location for inward investment. I strongly commend the clause to the Committee. 
 Question put and agreed to. 
 Clause 54 ordered to stand part of the Bill. 
 Clauses 55 and 56 ordered to stand part of the Bill. 
Further consideration adjourned.—[Mr. Allen.] 
 Adjourned accordingly at Seven o'clock till Tuesday 1 May at half-past Ten o'clock.